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Commitments, Contingent Liabilities and Other Matters | 12 Months Ended
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Dec. 31, 2018
Commitments and Contingencies Disclosure [Abstract] |
Commitments, Contingent Liabilities and Other Matters | Commitments, Contingent Liabilities and Other Matters Leases We lease certain manufacturing facilities, offices, sales and service locations, machinery and equipment, vehicles and office equipment under various leasing programs accounted for as operating and capital leases, some of which include scheduled rent increases stated in the lease agreement. We do not have any significant leases that require rental payments based on contingent events nor have we received any significant lease incentive payments. Operating Leases The future minimum rental payments under operating leases with remaining non-cancelable terms in excess of one year are:
Year Ending December 31,
2019 | $ | 9.1 |
2020 | 7.3 |
2021 | 4.5 |
2022 | 3.8 |
2023 | 3.4 |
Thereafter | 3.1 |
Total minimum payments | $ | 31.2 |
Total operating lease expense, inclusive of rent based on scheduled rent increases and rent holidays recognized on a straight-line basis, was $13.3 in 2018, $12.9 in 2017 and $13.2 in 2016. Spin-Off of SPX FLOW In connection with the Spin-Off, we entered into definitive agreements with SPX FLOW that, among other matters, set forth the terms and conditions of the Spin-Off and provide a framework for our relationship with SPX FLOW after the Spin-Off, including the following:
• | Separation and Distribution Agreement;
• | Tax Matters Agreement;
• | Employee Matters Agreement; and
• | Trademark License Agreement.
Pursuant to the Separation and Distribution Agreement, the Employee Matters Agreement and the Tax Matters Agreement, SPX FLOW has agreed to indemnify us for certain liabilities, and we have agreed to indemnify SPX FLOW for certain liabilities, in each case for uncapped amounts. As of December 31, 2018, no material indemnification claims have been initiated. The financial activity governed by these agreements between SPX FLOW and us was not material to our consolidated financial results for the years ended December 31, 2018, 2017 and 2016. We also entered into a five-year agreement with SPX FLOW to lease office space for our corporate headquarters. Annual lease costs associated with the agreement are $2.1. General Numerous claims, complaints and proceedings arising in the ordinary course of business have been asserted or are pending against us or certain of our subsidiaries (collectively, “claims”). These claims relate to litigation matters (e.g., class actions, derivative lawsuits and contracts, intellectual property and competitive claims), environmental matters, product liability matters (predominately associated with alleged exposure to asbestos-containing materials), and other risk management matters (e.g., general liability, automobile, and workers’ compensation claims). Additionally, we may become subject to other claims of which we are currently unaware, which may be significant, or the claims of which we are aware may result in our incurring significantly greater loss than we anticipate. While we (and our subsidiaries) maintain property, cargo, auto, product, general liability, environmental, and directors’ and officers’ liability insurance and have acquired rights under similar policies in connection with acquisitions that we believe cover a significant portion of these claims, this insurance may be insufficient or unavailable (e.g., in the case of insurer insolvency) to protect us against potential loss exposures. Also, while we believe we are entitled to indemnification from third parties for some of these claims, these rights may be insufficient or unavailable to protect us against potential loss exposures. Our recorded liabilities related to these matters totaled $631.7 (including $587.5 for asbestos product liability matters) and $685.7 (including $641.2 for asbestos product liability matters) at December 31, 2018 and 2017, respectively. Of these amounts, $600.3 and $651.6 are included in “Other long-term liabilities” within our consolidated balance sheets at December 31, 2018 and 2017, respectively, with the remainder included in “Accrued expenses.” The liabilities we record for these claims are based on a number of assumptions, including historical claims and payment experience and, with respect to asbestos claims, actuarial estimates of the future period during which additional claims are reasonably foreseeable. While we base our assumptions on facts currently known to us, they entail inherently subjective judgments and uncertainties. As a result, our current assumptions for estimating these liabilities may not prove accurate, and we may be required to adjust these liabilities in the future, which could result in charges to earnings. These variances relative to current expectations could have a material impact on our financial position and results of operations. Our asbestos-related claims are typical in certain of the industries in which we operate or pertain to legacy businesses we no longer operate. It is not unusual in these cases for fifty or more corporate entities to be named as defendants. We vigorously defend these claims, many of which are dismissed without payment, and the significant majority of costs related to these claims have historically been paid pursuant to our insurance arrangements. During the years ended December 31, 2018, 2017 and 2016, our payments for asbestos-related matters, net of insurance recoveries of $45.3, $57.3, and $46.7, were $9.7, $1.0 and $5.8, respectively. A significant increase in claims, costs and/or issues with existing insurance coverage (e.g., dispute with or insolvency of insurer(s)) could have a material adverse impact on our share of future payments related to these matters, and, as a result, have a material impact on our financial position, results of operations and cash flows. We have recorded insurance recovery assets associated with the asbestos product liability matters, with such amounts totaling $541.9 and $590.9 at December 31, 2018 and 2017, respectively, and included in “Other assets” within our consolidated balance sheets. These assets represent amounts that we believe we are or will be entitled to recover under agreements we have with insurance companies. The assets we record for these insurance recoveries are based on a number of assumptions, including the continued solvency of the insurers, and are subject to a variety of uncertainties. Our current assumptions for estimating these assets may not prove accurate, and we may be required to adjust these assets in the future, which could result in additional charges to earnings. These variances relative to current expectations could have a material impact on our financial position and results of operations. During the years ended December 31, 2018, 2017, and 2016, we recorded charges of $2.4, $5.7, and $4.9, respectively, as a result of changes in estimates associated with the liabilities and assets related to asbestos product liability matters. Of these charges, $2.0, $3.5 and $4.2 were recorded to “Other expense, net” for the years ended December 31, 2018, 2017, and 2016, respectively, and $0.4, $2.2, and $0.7, respectively, to “Gain (loss) on disposition of discontinued operations, net of tax.” Large Power Projects in South Africa Overview - Since 2008, DBT has been executing contracts on two large power projects in South Africa. Over such time, the business environment surrounding these projects has been difficult, as DBT has experienced delays, cost over-runs, and various other challenges associated with a complex set of contractual relationships among the end customer, prime contractors, various subcontractors (including DBT and its subcontractors), and various suppliers. These challenges have resulted in (i) significant adjustments to our revenue and cost estimates for the projects and (ii) various claims and disputes between DBT and other parties involved with the projects (e.g., prime contractors, subcontractors, suppliers, etc.). We believe that our probable liability associated with known claims has been adequately provided for in our consolidated financial statements. We may become subject to other claims, which could be significant. DBT has completed the majority of its contractual scope on the projects and is targeting to complete the remainder by the end of 2019. It is possible that certain of the outstanding claims could be resolved in 2019, while others are not likely to be resolved until after DBT completes its remaining scope. Our future financial position, operating results, and cash flows could be impacted by the resolution of current and any future claims, as well as potential changes to revenue and cost estimates relating to the execution of DBT’s remaining scope. Claims Activity - On February 15, 2019, DBT received a claim of South African Rand 116.7 (or $8.0) from one of its prime contractors on the projects alleging that DBT failed to meet a specific contract milestone. We believe that DBT has numerous defenses against this allegation and, thus, we do not believe that we have a probable liability associated with the claim. As such, no amount has been reflected in the accompanying consolidated financial statements for this matter. DBT has made various claims against the prime contractors for the projects. We have recognized revenue associated with these claims, along with certain unapproved change orders, to the extent the related costs have been incurred and the amount expected of recovery is probable and reasonably estimable. As of December 31, 2018, the recorded cumulative revenues related to these claims and unapproved change orders totaled $37.9. We believe these amounts are recoverable under the provisions of the related contracts and reflect our best estimate of recoverable amounts. On October 30, 2018, a non-governmental business adjudicator in South Africa provided a decision on certain claims made against DBT by one of its subcontractors. As part of its decision, the adjudicator concluded that the subcontractor was entitled to payment of South African Rand 256.0 (or $17.7). We believe that the decision is invalid on numerous bases. Therefore, DBT intends to pursue all available legal recourse in the matter and DBT has already referred the matter to both an arbitration process and court proceedings. Specifically, we believe, among other things, that (i) the adjudicator lacked jurisdiction to decide the claims and (ii) these and other claims were previously settled and satisfied by way of a 2015 amendment to the contract between DBT and the subcontractor. Based on the reasons stated above, we have concluded that it is not probable that a loss has been incurred with respect to this matter and, therefore, a liability has not been recorded in our consolidated financial statements. It is possible that an adverse result for any of these disputes could have a material effect on our consolidated financial statements. Change in Cost Estimates - During 2017, we experienced higher than expected costs associated with (i) DBT’s efforts to accelerate completion of certain scopes of work, (ii) financial and other challenges facing certain of DBT’s subcontractors, and (iii) delays and other on-site productivity challenges. As a result, during the second and fourth quarters of 2017, we revised our estimates of revenues and costs associated with the projects. These revisions resulted in aggregate charges to “Income (loss) from continuing operations before income taxes” of $52.8 during 2017 ($22.9 and $29.9 during the second and fourth quarters of 2017, respectively), which is comprised of a reduction in revenue of $36.9 ($13.5 and $23.4 during the second and fourth quarters of 2017, respectively) and an increase in cost of products sold of $15.9 ($9.4 and $6.5 during the second and fourth quarters of 2017, respectively). Although we believe that our current estimates of revenues and costs relating to these projects are reasonable, it is possible that future revisions of such estimates could have a material effect on our consolidated financial statements. Noncontrolling Interest in South African Subsidiary DBT has a Black Economic Empowerment shareholder (the “BEE Partner”) that holds a 25.1% noncontrolling interest in DBT. Under the terms of the shareholder agreement between the BEE Partner and SPX Technologies (PTY) LTD (“SPX Technologies”), the BEE Partner had the option to put its ownership interest in DBT to SPX Technologies, the majority shareholder of DBT, at a redemption amount determined in accordance with the terms of the shareholder agreement (the “Put Option”). The BEE Partner notified SPX Technologies of its intention to exercise the Put Option and, on July 6, 2016, an Arbitration Tribunal declared that the BEE Partner was entitled to South African Rand 287.3 in connection with the exercise of the Put Option, having not considered an amount due from the BEE Partner under a promissory note of South African Rand 30.3 held by SPX Technologies. As a result, we have reflected the net redemption amount of South African Rand 257.0 (or $17.7 and $20.9 at December 31, 2018 and 2017, respectively) within “Accrued expenses” on our consolidated balance sheets as of December 31, 2018 and 2017, with the related offset recorded to “Paid-in capital” and “Accumulated other comprehensive income.” In addition, during 2016 we reclassified $38.7 from “Noncontrolling Interests” to “Paid-in capital.” Lastly, under the two-class method of calculating earnings per share, we have reflected an adjustment of $18.1 to “Net income (loss) attributable to SPX Corporation common shareholders” for the excess redemption amount of the Put Option (i.e., the increase in the redemption amount during the year ended December 31, 2016 in excess of fair value) in our calculations of basic and diluted earnings per share for the year ended December 31, 2016. In August 2016, SPX Technologies applied to the High Court of South Africa (the “Court”) to have the Arbitration Tribunal’s ruling set aside. On January 22, 2018, the Court ruled in SPX Technologies favor and set aside the Arbitration Tribunal’s ruling. This ruling by the Court is subject to appeal by the BEE Partner. The BEE Partner appealed the decision and SPX Technologies continues to assert all legal defenses available to it. We expect the appeals court to hear this matter in late 2019. Beginning in the third quarter of 2016, in connection with our accounting for the redemption of the BEE partner’s ownership interest in DBT, we discontinued allocating earnings/losses of DBT to the BEE Partner within our consolidated financial statements. Litigation Matters We are subject to other legal matters that arise in the normal course of business. We believe these matters are either without merit or of a kind that should not have a material effect, individually or in the aggregate, on our financial position, results of operations or cash flows; however, we cannot assure you that these proceedings or claims will not have a material effect on our financial position, results of operations or cash flows. Environmental Matters Our operations and properties are subject to federal, state, local and foreign regulatory requirements relating to environmental protection. It is our policy to comply fully with all applicable requirements. As part of our effort to comply, we have a comprehensive environmental compliance program that includes environmental audits conducted by internal and external independent professionals, as well as regular communications with our operating units regarding environmental compliance requirements and anticipated regulations. Based on current information, we believe that our operations are in substantial compliance with applicable environmental laws and regulations, and we are not aware of any violations that could have a material effect, individually or in the aggregate, on our business, financial condition, and results of operations or cash flows. As of December 31, 2018, we had liabilities for site investigation and/or remediation at 28 sites (28 sites at December 31, 2017) that we own or control. In addition, while we believe that we maintain adequate accruals to cover the costs of site investigation and/or remediation, we cannot provide assurance that new matters, developments, laws and regulations, or stricter interpretations of existing laws and regulations will not materially affect our business or operations in the future. Our environmental accruals cover anticipated costs, including investigation, remediation, and operation and maintenance of clean-up sites. Our estimates are based primarily on investigations and remediation plans established by independent consultants, regulatory agencies and potentially responsible third parties. Accordingly, our estimates may change based on future developments, including new or changes in existing environmental laws or policies, differences in costs required to complete anticipated actions from estimates provided, future findings of investigation or remediation actions, or alteration to the expected remediation plans. It is our policy to revise an estimate once it becomes probable and the amount of change can be reasonably estimated. We generally do not discount our environmental accruals and do not reduce them by anticipated insurance recoveries. We take into account third-party indemnification from financially viable parties in determining our accruals where there is no dispute regarding the right to indemnification. In the case of contamination at offsite, third-party disposal sites, as of December 31, 2018, we have been notified that we are potentially responsible and have received other notices of potential liability pursuant to various environmental laws at 14 sites (15 sites at December 31, 2017) at which the liability has not been settled, of which 10 sites have been active in the past few years. These laws may impose liability on certain persons that are considered jointly and severally liable for the costs of investigation and remediation of hazardous substances present at these sites, regardless of fault or legality of the original disposal. These persons include the present or former owners or operators of the site and companies that generated, disposed of or arranged for the disposal of hazardous substances at the site. We are considered a “de minimis” potentially responsible party at most of the sites, and we estimate that our aggregate liability, if any, related to these sites is not material to our consolidated financial statements. We conduct extensive environmental due diligence with respect to potential acquisitions, including environmental site assessments and such further testing as we may deem warranted. If an environmental matter is identified, we estimate the cost and either establish a liability, purchase insurance or obtain an indemnity from a financially sound seller; however, in connection with our acquisitions or dispositions, we may assume or retain significant environmental liabilities, some of which we may be unaware. The potential costs related to these environmental matters and the possible impact on future operations are uncertain due in part to the complexity of government laws and regulations and their interpretations, the varying costs and effectiveness of various clean-up technologies, the uncertain level of insurance or other types of recovery, and the questionable level of our responsibility. We record a liability when it is both probable and the amount can be reasonably estimated. In our opinion, after considering accruals established for such purposes, the cost of remedial actions for compliance with the present laws and regulations governing the protection of the environment is not expected to have a material impact, individually or in the aggregate, on our financial position, results of operations or cash flows. Self-Insured Risk Management Matters We are self-insured for certain of our workers’ compensation, automobile, product and general liability, disability and health costs, and we believe that we maintain adequate accruals to cover our retained liability. Our accruals for risk management matters are determined by us, are based on claims filed and estimates of claims incurred but not yet reported, and generally are not discounted. We consider a number of factors, including third-party actuarial valuations, when making these determinations. We maintain third-party stop-loss insurance policies to cover certain liability costs in excess of predetermined retained amounts. This insurance may be insufficient or unavailable (e.g., because of insurer insolvency) to protect us against loss exposure. Executive Agreements The Board of Directors has approved an employment agreement for our President and Chief Executive Officer. This agreement had an initial term through December 31, 2017 and, thereafter, rolling terms of one year, and specifies the executive’s current compensation, benefits and perquisites, severance entitlements, and other employment rights and responsibilities. The Compensation Committee of the Board of Directors has approved severance benefit agreements for our other six executive officers. These agreements cover each executive’s entitlements in the event that the executive’s employment is terminated for other than cause, death or disability, or the executive resigns with good reason. The Compensation Committee of the Board of Directors has also approved change of control agreements for each of our executive officers, which cover each executive’s entitlements following a change of control.

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